June 23, 2018, 10:20 am
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US steel shares crawl back from financial crisis

By Lewis Krauskopf

NEW YORK- President Donald Trump’s plans to impose a 25 percent tariff on imported steel has shined a light on US steel companies, whose shares have outperformed the overall market since Trump’s election but as a group remain well below levels reached before the financial crisis a decade ago.

The S&P 1500 steel index has climbed more than 3 percent since Trump last week announced his plans to impose tariffs on imported steel and aluminum to protect US producers, which set off fears of a global trade war and spooked the broad stock market. 

The past few days have been bumpy for steel stocks, given uncertainty about the timing and extent of the tariffs as Trump faces growing pressure from political and diplomatic allies as well as US companies urging him to pull back. 

Investors are accustomed to volatility for the stocks. The sector has climbed more than 40 percent since Trump’s November 2016 election, compared with a 27 percent rise for the benchmark S&P 500 index, but it has taken a roller-coaster path over that time.

The potential for increased spending on US infrastructure under Trump fueled a rise in the shares in the aftermath of the election. But their performance has wobbled as prospects for an infrastructure package waned last year, along with uncertainty over protectionist measures.

Much of the gains for steel stocks are due to improved overall industry conditions, according to analysts, including higher prices, with the global economy strengthening and China reducing its steel production.

“The initial rally happened because he talked about infrastructure,” said David Lipschitz, an analyst with Macquarie Capital. “Up until the tariff talk recently, prices in the US have rallied nicely because international prices have had a nice rally. China has taken capacity off line.”

Despite its run, the S&P 1500 steel index remains more than 45 percent below levels reached in mid-2008, before the financial crisis took hold, even as the broad market has marched to record highs.

The sector’s rise in the mid-2000s came amid strength in the US economy including non-residential building as well as a surge in construction in China, analysts said.

“When the stocks really, really surged, there was a belief last time that it was going to go on forever, that China was going to continue to build and build and build,” said Philip Gibbs, an analyst at KeyBanc Capital Markets. “Their growth rates have definitely slowed dramatically since that time period.”

The stocks were crushed during the global financial crisis as commodity prices tumbled along with equity markets. Demand for steel dropped as construction and auto markets weakened.

Shares of Nucor Corp, the largest company in the 13-component steel index by market value and the only steel stock in the S&P 500, remain about 20 percent below levels reached in mid-2008. US Steel Corp, which traded as high as $196 a share in 2008, now trades at around $44. – Reuters 
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